What is the principal residence exemption in BC?

Direct answer

The principal residence exemption takes capital gains tax off the home you actually live in. Only one property per family per year qualifies. It is federal, sits in section 40(2)(b) of the Income Tax Act, and covers every year you both ordinarily inhabited the property and designated it. Only ONE property per family unit per year can be designated as principal residence — couples cannot double-count a cottage and a city home for the same year. The "+1 rule" tacks an extra year onto the designation to cover the year of acquisition of a replacement property. Critical detail BC sellers underweight: since the 2016 reporting changes EVERY disposition of a principal residence MUST be reported on Schedule 3 of your T1 personal tax return with the principal residence exemption designation made via Form T2091(IND), even if the gain is fully exempt. Failing to file triggers a Canada Revenue Agency penalty ($100/month, max $8,000) and can cost the exemption retroactively. The principal residence exemption does NOT auto-apply at sale. The federal anti-flipping rule (s. 12(12)) overrides the PRE for sales within 365 days of acquisition unless a life-event exception applies. The BC Home Flipping Tax (a separate provincial tax) extends the short-hold window to 730 days. The 2024 proposed 66.67% capital-gains inclusion-rate increase was cancelled March 21, 2025, so the inclusion rate remains 50%.